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Water Rate Cost-of-Service Study Section 3. Revenue Requirements HF&H Consultants, LLC | July 8, 2025 | Page 16 of 53 Debt Service The City has three outstanding bond obligations. The annual debt service is approximately $3.8 million. The outstanding bonds are identified in Figure 3-3. The 2015 and 2017 refunding bonds refinanced existing debt originally issued between 2005 and 2007. The 2024 Refunding Bond specifically refinanced the previous 2013 Refunding Bond. In each instance, the original debt service funded capital projects related to the recycled water program. Although these projects were constructed and are in service, the debt service on these bonds will continue beyond the Recommended Period. As shown in Appendix A, Table 6, the City has projected issuance of a bond in FY 2030–31 to fund potable and recycled water projects as it continues to implement necessary system improvements and upgrades. This assumption may change as the time to conduct these projects draws closer. Figure 3-3. Current Annual Debt Service Capital Expenditures Even though the City has constructed facilities to provide water service, these facilities will depreciate and eventually need to be replaced. It is unrealistic to think that the system has already been built and paid for and that there will be no future capital costs. The City has in place a Water Master Plan and a recently completed, Recycled Water Master Plan to address long-term capital projects via its Capital Improvement Program (CIP). Based on this Plan, the revenue requirement projections show an increased level of funding in FY 2026-27 that is needed to support the capital improvement program, which contains approximately $65.3 million in cash-funded capital projects11 over the next five years, or an annual average of $13.1 million (net of capacity fee revenue), as shown in Figure 3-4. For a comprehensive list of all capital projects currently forecasted through FY 2034-25, refer to Appendix A, Table 5. 11 This figure assumes an annual inflation factor of 3.26% beginning FY 2025-26, based on the ten-year compound annual growth rate of the Engineering New Record Construction Cost Index for San Francisco. Current Debt FY 2025-26 FY 2026-27 FY 2027-28 Series 2015 Refunding Bonds $1,421,244 $1,420,244 $1,418,294 Series 2017 Refunding Bonds $494,419 $497,669 $494,919 Series 2024 Refunding Bonds $1,867,250 $1,862,000 $1,864,000 Annual Debt Service $3,782,913 $3,779,913 $3,777,213 ATTY/RESO.0109/CC RESO WATER RATES - EXHIBIT A REV: 11-05-25 MI